16. Leases

Accounting policies

A lease is an agreement that conveys the right to control the use of identified asset for a defined period of time in return for a payment.

Leases in which BASF is a lessee mainly relate to real estate and transportation and technical equipment.

Leases can be embedded within other contracts. If separation is required under IFRS, the embedded lease is recorded separately from its host contract and each component of the contract is accounted and measured in accordance with the applicable regulations.

As lessee, BASF accounts for nearly all leases, recognizing right-of-use assets for leased assets and liabilities for lease agreements. The following principles are considered:

• BASF exercises the exemption for lease agreements with a maximum term of 12 months from the date of provision and low-value assets. Low-value assets are generally defined as leased assets worth a maximum of €5,000.
• Lease liabilities are measured at the present value of the remaining lease payments, taking into account the incremental borrowing rate.
• As a general rule, BASF separates non-lease components, such as services, from lease payments.
• A right-of-use asset is generally recognized at the same amount as the lease liability. Differences may arise from the lease payments made prior to the provision of the leased asset, less any lease incentives received.
• After capitalization at the commencement date, whereby the right-of-use asset is measured at cost, the right-of-use asset is generally depreciated over the lease term using the straight-line method.
• A number of leases, particularly for real estate and barges, include extension and termination options. Extension and termination options are taken into account on recognition of the lease liability only if BASF is reasonably certain that these options will be exercised in the future. When contract terms are being determined, consideration is given to all facts and circumstances that offer an economic incentive for exercising extension options or not exercising termination options. Changes in lease terms arising from the exercise of an extension option or non-exercise of a termination option are only considered if sufficient certainty exists. Estimates and expectations which are asserted at the commencement date of the lease liability and the right-of-use asset and pertain to future payments not yet determined on the date of provision are assessed continuously during the lease term. If subsequently improved or changed knowledge influences the expected payment profile over time, the lease liability is remeasured.
• If an existing lease contract is modified, the lease liability and right-of-use asset must be remeasured, provided the modification changes the payment profile (pursuant to the interest and principal plan) or the scope (either quantitatively or time-related) of use of the asset.

BASF presents the interest component of lease payments in cash flows from operating activities and the repayment portion in cash flows from financing activities. Lease payments under short-term agreements, agreements with low-value assets or variable payments are presented in cash flows from operating activities.

BASF entered a five-year rental agreement for a building with the sale of the site in Tarrytown, New York, in 2022. The lease liabilities for this sale-and-leaseback transaction amounted to €12 million as of December 31, 2022.

BASF as lessor

BASF acts as a lessor for finance leases to a minor extent only. Receivables on finance leases were €35 million in 2022 (2021: €44 million). The leased assets pertained primarily to buildings and production facilities.

Claims arising from operating leases amounted to €268 million in 2022 (2021: €190 million). As in the previous year, there were no material operating leases for property, plant and equipment.